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Pharmaceutical Transparency Bills: What’s the Real Purpose?

On Monday, the Massachusetts Joint Committee on Health Care Financing held a hearing onSenate bill 1048, which would require pharmaceutical companies to report to the state a range of information on their research & development costs, marketing and advertising costs, and prices charged to a number of different purchasers. The hearing, recapped by theBoston GlobeandGloucester Times(among others), went as expected, with industry executives opposing the bill and health insurers, consumer advocates, and others testifying in support.

Massachusetts is not the only state considering a transparency bill. At leasttenother states, includingCalifornia,North Carolina,Oregon, andVirginiahave all drafted bills that would advance similar goals. These bills do differ in their details. As just one example, each state would require disclosure from a different set of drugs and companies. Massachusetts would only require disclosure of costs and pricing for the top twenty selling drugs in the state (where the list is based around a set of criteria including but not limited to cost), California, Oregon, and Virginia would require disclosure for any drug whose wholesale cost is $10,000 or more per year (in California, this includes over900 drugs), and North Carolina’s bill is framed around classes of drugs, rather than prices.

It is no accident that these bills have been developed in the wake of Martin Shkreli, Valeant Pharmaceuticals, and other drug pricing scandals. Patients and policymakers are seizing this moment to take action against the drug industry. Forcing companies to disclose their R&D costs, advertising costs, and pricing practices is seen as a step in the right direction against these secretive companies. In this blog post, I want to focus on just one of many interesting issues raised by these bills: what and who are they useful for, and how can we target the required disclosures to best achieve those ends? More specifically, I’m not interested in transparency for transparency’s sake. Disclosure rules (like nutrition labels, for instance) can and should be used to help people make better decisions than they would’ve otherwise made.

It’s not about patients: Interestingly, these transparency bills are seemingly not designed to help patients themselves, unlike many other transparency rules in the health care context. The idea is not to create a public database that enables consumers to price shop for health care services (Massachusetts and other states already have such tools). Indeed, much of the information proposed to be collected is either not clearly relevant for patients seeking to lower their own costs (R&D expenditures, advertising costs) or will be held back by the state government as proprietary information (price charged to different insurers), although details on this latter point have yet to be worked out in most states.

It’s not about direct price regulation (yet): One common argument made in support of these bills is that they will enable states to control the price of these drugs. At least in the case of Massachusetts, the bill’s sponsor has explicitly disavowed this argument, stating at the hearing that“we’re not trying to regulate prices.” The idea instead is something like, more transparency will promote competition, which will then lead to lower prices. Perhaps, but I’m not optimistic, given that more transparency in the context of health care services has often led to anincreasein average costs, not a decrease. These bills may well beprecursorsto bills that address drug prices directly, but they do not themselves do so.

It’s about gathering data: And so we come to what I think is and should be the goal of these bills: to gather data about drug R&D costs, advertising costs, and pricing that policymakers and researchers can use to make sensible choices about how to regulate pharmaceuticals, for the benefit of both patients and drug companies. As such, it is important to think about what types of data would be useful for solving problems (or identifying them) in drug pricing and innovation policy, and how we can use these bills to give us information that we don’t already have. At least some of the data these bills seek to collect (such asamount spent on advertising) is already publicly reported in some form. We should take care to specify that the information requested by these bills would be different and more useful, such as if it were broken down in a more granular way, by drug and by outlet.

Data can serve a range of purposes: Policymakers and researchers can use the information generated by these bills to enable evidence-based policymaking along a range of dimensions. Boston University law professor Kevin Outterson, a leading expert in incentives to develop new antibiotics, testified that such data would be useful as governments seek to estimate the risks and costs of developing new antibiotics, in service of supporting alternative innovation incentives. Jamie Love, the Director of Knowledge Ecology International, haswritten persuasivelythat detailed information about clinical trial costs, broken down by drug, phase, and patient, could enable policymakers to analyze intelligently incentives designed to develop new uses for old drugs, or to test drugs on new populations. Interestingly, these arguments may support even broader data collection than the states have proposed. That is, collecting data on only the top twenty drugs that have come to market gives us no information about the drugs that have failed, or most drugs that are only barely recouping their input costs.

In my own view, it’s not obvious that the data generated by these bills could or would be used to take action against pharmaceutical companies directly. After the last several months, the public already knows that many companies charge high prices for drugs, that prices are basedless on input costs and more on what the market will bear, that companies increasingly in-license drugs rather than developing them entirely in-house, that they spend large amounts on advertising and lobbying, etc. On these metrics, companies will not be telling the public things they don’t already know on some level. But the value of the data to enable policymaking on alternative incentives for innovation, or even to promote incentives that directly support pharmaceutical companies themselves, is real – and policymakers ought to think carefully about how best to use these transparency bills to support these efforts.

Rachel Sachs, JD, is an academic fellow at the Petrie-Flom Center at Harvard Law School.This post originally appeared in Bill of Health, the Petrie-Flom blog.